Originally published in The Economist, January 6, 2025.
“Stagnant economies do not help. Neither does a rational aversion to saving cash in countries with histories of high inflation or, as was recently the case in Ghana, state-enforced restructuring of pensions because of a debt crisis. Many Africans continue to see land and property (and in some cases cattle) as more reliable places to store wealth. Though the rise in fintech firms should make it easier to save, the shallowness of capital markets means there can also be a lack of investment options. On a recent trip to Angola your correspondent sat in on a talk by a young investor who pitched to his peers on investing in the local stock exchange. It will be hard for them to diversify their portfolios, though: there are only four listed firms.
Then there is electricity, the second most commonly cited obstacle. Energy for Growth Hub, another think-tank, found that 78% of firms in Africa experienced annual power cuts in 2018, and that 41% identified electricity as a major constraint to their operations, the highest of any region. African firms lose on average the equivalent of 25 days of economic activity a year through power cuts. Justice Mensah of the World Bank last year estimated that Ghana’s power crisis of 2013-16 increased the unemployment rate by five percentage points, because it stunted incumbents and made it harder for new businesses to get started. Other research shows that firms in poor countries subject to power cuts have lower productivity growth than those with a steady supply, because it stops them using their capital equipment.”
Read the full article here.